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Pipes for the Constitution Pipeline are stacked at a pipe yard in Altamont, NY in 2014

Last Friday the Second Circuit Court of Appeals sided with the New York State Department of Environmental Conservation (“NYSDEC”) and their denial of a § 401 certificate under the U.S. Clean Water Act to Constitution Pipeline (a partnership among Cabot Oil & Gas Corp.; Oklahoma-based energy company Williams Cos.; Piedmont Natural Gas; and WGL).

Denying Constitution Pipeline’s application effectively vetoed a $750 million plan for a 124-mile pipeline stretching from the Marcellus shale deposits in Pennsylvania to the Iroquois pipeline in New York state, and eventually feeding the supply-choked Northeast region in with natural gas. Although Constitution obtained various permits from the Federal Energy Regulatory Commission (“FERC”) over the last five years in order to proceed with the project, they failed to satisfy NYSDEC’s requests for environmental impact accommodations on each of the 251 New York water bodies the pipeline would have traversed.

Pipeline developers ‘shot themselves in the foot’ by fumbling the state environmental review

The Second Circuit specifically noted in its decision that Constitution had failed to address water resource impacts despite the state’s repeated requests for more information. Much of the Court’s decision hung on the company’s failure to consider alternative routes, less harmful stream crossing methods, and other information the state needed for its environmental review.

Constitution argued that it provided “sufficient” information since trenchless crossing methods for streams less than 30 feet wide was not “an industry recognized standard”. The court rejected this argument, stating that, “[i]ndustry preferences do not circumscribe environmental relevance.” The decision upheld NYSDEC’s denial based on Constitution’s failure to provide the extra water impact information requested. The case clearly signaled that states have a right to halt pipeline projects over environmental concerns – even when the project has otherwise been given federal approval.

Wider impact on state control under Clean Water Act remains to be seen

Under the U.S. Natural Gas Act, FERC has authority to approve the construction of interstate natural gas pipelines. However, Section 401 of the Clean Water Act requires that certain federally licensed projects gain state permits for environmental reasons. Up to this point, FERC has been somewhat slow to accept that states have veto power of federal licenses. Friday’s unanimous decision, while not binding on the rest of the country, is a strong indication of how other circuits might rule.

The Second Circuit specifically stated that the § 401 certification is:

… a statutory scheme whereby a single state agency effectively vetoes an energy pipeline that has secured approval from a host of other federal and state agencies … Through [the § 401 certification] requirement, Congress intended that the states would retain the power to block, for environmental reasons, local water projects that might otherwise win federal approval.

Constitution also argued that NYSDEC’s delay constituted a waiver of the state’s right to deny the certification. This argument was dismissed by the Circuit Court because jurisdiction over that decision falls to the U.S. Court of Appeals for the District of Columbia Circuit. In June the DC Circuit decided a similar issue of waiver and told the pipeline developer that state agency delay of over a year can allow developers to bypass the state and go straight to FERC.

The Second Circuit’s decision comes as the state of Virginia is holding public hearings on § 401 certificates for the Atlantic Coast and Mountain Valley pipelines. While state regulators have vowed to asses construction impacts and “ensure that water quality is maintained into the future,” many are now keeping a close watch on Capitol Hill as the energy bill moves through the U.S. Senate. The decision could result in increased pressure on members of Congress to explicitly strip states of their newfound authority under federal law.

If you are involved in a legal dispute involving these or any other water law issue, contact the experienced attorneys at Christensen & Jensen and avoid pitfalls both before, during, and after litigation.